Employer Health Tax a bitter pill for small business

VANCOUVER, April 27, 2018 – A new report released today by the Canadian Federation of Independent Business (CFIB) reveals the proposed Employer Health Tax (EHT) is flawed, punitive, and will negatively impact a wider swath of small and medium-sized businesses than the BC Government admits.

“The Government should scrap their proposed Employer Health Tax. It is hastily conceived, poorly designed, and is bad for the health of small and medium-sized business,” said Richard Truscott, Vice President, BC and Alberta. “If they are going to push ahead, the Government needs to go back to the drawing board and fix their flawed tax proposal to make it a much easier pill to swallow.”

The report dispels a series of myths and misrepresentation by the government about the tax.

Myth: The Government claims only 5 per cent of all businesses will pay the full tax, and only 15 per cent will pay some tax. Reality: The new tax will actually be paid by 44 per cent of businesses with a payroll (i.e. with employees), representing at least 60,000 businesses across BC, most of them relatively small in size. Myth: The tax will mainly be a cost on big business. Reality: The tax will cost the average small business owner subject to the tax more than 15 thousand dollars.

The CFIB report draws on government data, as well as a survey of 768 business owners across BC, to show the EHT will: create disincentives to business growth, hurt employees through reduced wages, increase prices for consumers, and cause public sector entities like municipal governments and school boards to hike property taxes and fees on residents and businesses.

The report also exposes the flaws in the design of the new tax. For instance, as soon as a business exceeds the $500,000 in payroll, tax is paid on the entire payroll, not just the amount over the threshold. The same appears to apply to the tiers of tax rates. That means business bumping up against the $500,000 threshold or a higher tax tier of tax will have a strong incentive to reduce payroll, and forgo growth.

When asked what actions they would take to help reduce the cost of the proposed EHT, 63 per cent of business owners said they would reduce planned bonuses for employees, 62 per cent said they would reduce planned raises, and 46 per cent said they would eliminate plans to hire additional staff.

“As currently structured, this new tax would be bad news for employment and bad news for the economy. It will mean huge numbers of small and medium-sized businesses will be paying more tax. In fact, a lot more tax. But it is the people working inside those businesses who will also bear the brunt of this big new tax bill”, stated Truscott.

Background:

The proposed Employer Health Tax (EHT) was introduced by the BC Government in its February budget to replace the revenues lost from the elimination of Medical Service Plan (MSP) premiums for individuals and businesses. The new $1.9 billion a year tax would take effect on January 1, 2019 and means businesses with more than $500,000 in payroll would pay a series of tiered tax rates. Business with more than $1.5 million in payroll would pay the full 1.95 per cent tax.